Sanity check - S&S ISA to SIPP

Jami74

I am not looking for financial advice, just a sanity check to see if this is a reasonable plan.

I have a S&S ISA of about £3,000 that I opened a few years ago as a first taste in investing. I haven't contributed to it recently. I am contributing to a flexible Cash ISA for short term goals.

I also have a SIPP with about £15,000 in which I am currently contributing to monthly. The hope is that this SIPP will bridge a slightly early retirement before my NHS and state pension kick in at 67.

I am 51 and a higher rate tax payer. If I contribute an extra £2,500 to my SIPP this year in addition to my usual contributions that will bring my taxable income back into basic tax rate territory (sorry for my wording, I know I've probably said it wrong).

Does it make sense to cash out the S&A ISA and put it into the SIPP rather than 'borrow' from my cash ISA savings? Is there anything I've not considered?

El_Torro

Whether you take the money from your Cash ISA or your Stocks & Shares ISA depends on how much cash you currently have and whether you are happy with this amount. If you currently are holding too much cash I would leave your S&S ISA alone and transfer it from your Cash ISA instead. 

It can make a lot of sense to move money from your ISA to your pension, especially if you are currently paying 40% income tax and when you withdraw it you will be paying 20% (or less). Remember though that ISAs are more flexible than pensions in terms of when you can withdraw from them. If you are happy not accessing this money for the next 6 years then it looks like you are making a good move. 

Albermarle

Also for your SIPP contributions, you will need to inform HMRC about the gross contributions you make ( so including the basic rate tax relief the SIPP provider will add).
This will be included in your tax calculation for 25/26 and will mean you will pay less 40% tax and more 20% tax ( assuming your salary is high enough), so will be due a refund sometime later in the year.

Jami74

Thank you both. I think it's the sensible thing to do, and will keep the cash in the flexible cash ISA for emergencies/household stuff.

I wrote a letter to HMRC last year and got a refund in October so will do the same this year after April.

Dazed_and_C0nfused

Jami74 said:

Thank you both. I think it's the sensible thing to do, and will keep the cash in the flexible cash ISA for emergencies/household stuff.

I wrote a letter to HMRC last year and got a refund in October so will do the same this year after April.

@Jami74

That won't work anymore, you will need to follow the new way HMRC want to deal with this now, as outlined here.

https://www.gov.uk/guidance/claim-tax-relief-on-your-private-pension-payments

ClarityInvestUK

The cleanest way to look at this is to separate the tax question from the wrapper question, because they point in slightly different directions.

1. The tax logic you’re using is sound.
   If an extra £2,500 pension contribution brings you back into basic‑rate territory, the effective relief on that contribution is very high.
   That part of the plan is perfectly reasonable.
2. The ISA vs SIPP question is really about flexibility.
   Money in a SIPP is locked until at least age 55 (57 from 2028).
   Money in an ISA is accessible at any time.
   So the real question is whether you’re comfortable giving up flexibility in exchange for the extra tax relief.
3. Borrowing from your Cash ISA doesn’t change the immediate tax position.
   Whether the £2,500 comes from:
   • cash savings, or
   • selling the £3,000 S&S ISA
   …the tax relief on the SIPP contribution is identical.
   The only difference is which pot you prefer to reduce.
4. The S&S ISA is small enough that the behavioural point matters more than the maths.
   Cashing out a £3,000 ISA to fund a pension contribution is fine if you don’t need that money accessible.
   If you do value flexibility, then using the Cash ISA instead keeps your investment ISA intact.
5. The thing people often overlook:
   A SIPP contribution is a tax decision.
   Selling an ISA is a liquidity decision.
   They’re not the same decision, even though they feel linked.
6. The behavioural framing:
   Most people ask “Should I move money from my ISA to my SIPP?”, but the real question is “Do I want more tax relief now, or more flexibility later?”
   Once you frame it that way, the answer usually becomes clearer.

A couple of broader cash‑flow points worth keeping in mind

7) Most people aiming to maintain their current standard of living in retirement save a very high proportion of net income.
A rough rule of thumb is that someone starting in their 50s often needs to save close to half of their net income (after housing costs) to replicate today’s lifestyle at retirement.
That isn’t a prescription — just a sense of the scale involved.

8) If you’re not saving at that level, it implies you’re comfortable with a step‑down in lifestyle at 67.
There’s nothing wrong with that, but it’s worth being conscious of the trade‑off.
The decision isn’t just “ISA or SIPP?” — it’s also “What standard of living am I targeting later?”

9) Many people prioritise long‑term lifestyle stability over the difference between paying 40% tax now or 20% later on a relatively small slice of income.
The tax optimisation is real, but the lifestyle implications are often larger.
Framing the decision in terms of future spending power can make the choice clearer.

Jami74

https://forums.moneysavingexpert.com/discussion/comment/81863337#Comment_81863337

Yeah, that's very similar to what chatgpt said. AI is very good but I also like a human take on things as well.

Edited to add: couldn't quote, something to do with JSON files couldn't be converted to quill operations